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Researchers attract untraditional buyers

Food marketer General Mills, agency holding company Interpublic Group of Cos. and marketing services company Catalina Marketing Corp. are all in the market research business, thanks to acquisitions or new ventures in recent months. The trio are taking the plunge as the $5 billion-a-year research industry comes off a 15% growth spurt in 1999 -- the biggest in recent memory.

Why is just about everyone suddenly getting into the research business? Industry taboos that once kept research companies independent from the agencies whose work they evaluated have toppled, and a growing demand for online research and other proprietary systems to speed consumer testing and product development has placed a premium on research companies, according to analysts and industry-watchers.

IMPROVED TARGETING

Much of the impetus comes from agencies and clients wanting to target their messages better, said Robert Jacaparo, an analyst with Sidoti & Co., who covered the market research industry until each of the three companies he followed was bought by a company outside the industry in the past year.

MarketFacts was purchased last year by Aegis Group, U.K.-based owner of media buying company Carat; M/A/R/C Group was bought in October by Omnicom Group for $100 million; and NFO Worldwide was snapped up by Interpublic for $580.9 million, or 1.3 times sales.

"There's also a speed-to-market aspect," Mr. Jacaparo said, spurring companies to join the market research realm. "M/A/R/C Group had been using some Web-based technology to do research projects and collect data. It's where the industry is moving to shrink project cycles." Likewise, NFO's work in online focus groups and its 50% stake in the online research service InsightExpress made that old-line research company more attractive to Interpublic, he said.

The desire to marry the Web-based research applications developed by Sausalito, Calif.-based MarketTools with the research methodologies developed by General Mills sparked a joint venture between those companies announced last week.

General Mills, which already does 20% of its own consumer research online and plans to expand that this year, is taking a yet-undetermined stake in MarketTools and a 50% stake in a new venture, InsightTools, which will sell online consumer research services to marketers. General Mills wouldn't disclose financial details of the transaction. While the company expects InsightTools to be profitable, it sees the venture more as a way to offset its consumer research expenses than as a profit center, said Gayle Fuguitt, VP-consumer insights at General Mills.

INTERNET RESEARCH

"What we've found at General Mills is that the Internet is the consumer-chosen way to communicate their wants, needs and desires," said Ms. Fuguitt. "We've found Internet research to be faster, less expensive and able to provide a greater depth of insight and understanding than the traditional forms of consumer research."

For instance, she said consumer participation rates for online surveys reach as high as 90% and that consumers also tend to provide much more detailed responses online than researchers ordinarily can obtain in phone or mail surveys. She said General Mills has now validated Internet consumer tests against conventional offline tests in 120 cases, coming up with similar results in both kinds of testing.

InsightTools will provide concept, packaging and positioning testing along with consumer and employee attitudinal surveys, Ms. Fuguitt said, and may ultimately delve into online ad testing as increasing availability of high-speed Internet access to consumers permits.

"General Mills has a willingness to take . . . in-house methodologies that have been their proprietary ownership for years and to make them available to all types of companies on the Web," said Bill Schlegel, president-CEO of MarketTools, who said that methodology will make a strong combination with MarketTools' software.

STRONG GROWTH

The growth rate of market research -- 15% in the U.S. and 8% globally last year -- is one factor that makes the business attractive to package-goods or other companies, Ms. Fuguitt said. That far eclipses the growth rate of package-goods companies. Though General Mills expects to post double-digit sales growth for its fiscal year ending June 30, that's the exception rather than the rule in an industry that has logged growth in the low single digits in recent years.

General Mills isn't the only package-goods company to express interest in a Web-based research venture. Procter & Gamble Co. also offered last year to buy a stake in Planetfeedback.com, a consumer feedback research venture launched by former P&G interactive brand manager Pete Blackshaw. But Mr. Blackshaw turned P&G down, fearing that being tied too closely to one marketer would make it harder to do business with others.

LOYALTY QUESTIONS

But MarketTools doesn't see General Mills' involvement as a stumbling block to other package-goods clients. Mr. Schlegel said he was contacted by three package-goods companies he wouldn't identify interested in doing business shortly after the venture was announced last week.

A technology-research swap of a different kind spurred Catalina Marketing last year to buy Alliance Research, a $10 million-a-year research company based in Crestview Hills, Ky., near Cincinnati.

Alliance does customized attitudinal research for package-goods and technology marketers, and Catalina saw a chance to use its Checkout Coupon system to recruit targeted consumers for research panels.

"If you're working on [P&G's] Tide brand and you want to wipe out [Unilever brand] Wisk's market share, wouldn't you rather be talking to a panel of Wisk consumers than a representative group of laundry detergent buyers?" asked David Diamond, chief vision officer for Catalina.

Though the ability to target specific consumer groups was the impetus for its own acquisition, Mr. Diamond sees growing acceptance of agencies owning research companies as another factor in the current wave of consolidation.

"Ten years ago, you would have had companies [like P&G] saying, `I'm not sure I'm comfortable using NFO for research if IPG is a [Unilever] shop,' and that's going away," he said. "It's no longer the sense that it's the fox guarding the hen house. I can use the research companies without worrying about the competitive issues at the ad agencies."